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[18 comments]

Amazon's Price Changing Machine

December 19, 2013

According to analysis by Profitero, a U.K.-based price intelligence firm, Amazon.com implemented more than 2.5 million price changes every day during the month of November. That dwarfs the just over 50,000 total price changes that were made by brick-and-mortar retailers Best Buy and Walmart throughout the entire month of November.

Profitero's analysis also revealed that Amazon.com increased its number of daily price changes ten-fold over the last 12 months. In December 2012, the online retailer implemented just 269,113 price changes.

Profitero noted that with price the number one driver for value-conscious shoppers, Amazon is gaining a definitive edge by assuring competitive prices across its portfolio.

"Profitero predicts that the number of price changes is only going to increase as the retail landscape becomes more competitive, and so it's impossible for any retailer to monitor this number of price changes manually," said Volodymyr Pigrukh, CEO of Profitero, in a statement.

ABC News had a reporter seek out the best price for a Bulova watch. The price dropped from $750 a little after 5 p.m. on a Friday to $510 at 6 p.m., then to $418 eight hours later at 1:00 a.m.

In an article earlier this year, the Financial Times noted that Amazon uses "robo-pricing," which utilizes some high-speed, algorithm-driven trading technologies used on Wall Street. This allows merchants to automatically undercut competitors by a predetermined amount. It found that prices on Amazon.com can change as often as every 15 minutes.

Such technologies likely helped Amazon.com offer a deal every ten minutes this past Black Friday week.

Discussion Questions:

How much of an advantage does Amazon gain with its continual price adjustments? How should brick & mortar and multichannel retailers respond? Where do you the use of robo-pricing going in the future?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much of an advantage does Amazon gain with its continual price adjustments?

Comments:

Amazon is the darling for e-tail bloggers, and continues to dazzle us with their array of buying options. Now we have robo-pricing, which sounds good, and if the price keeps going down, will the consumer wait until it hits rock bottom? Kind of like the Deal Dash concept.

How do you respond to such craziness as a conventional retailer? This new mechanism for pricing will not allow for matching offers if they change every 15 minutes. What's next, a Virtual Spirit Salesperson inside your household, who obviously works for Amazon, guiding your every move, making sure Amazon will get anything you desire to your door in 5 minutes?

I'm sure Jeff Bezos already has this on the back burner.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Does having a constantly dancing price point feel good and right to you? Really?

Think of what it's putting consumers through. Already we have to figure out at which precise moment to buy an airplane ticket. And it's not that the price keeps going down, they go up even faster sometimes within minutes of the previous posting. Many times we've decided not to travel because it just gets ridiculous. Any day now I'm expecting restaurants to have "Prices subject to change mid-meal without notification" on their menus - blaming it on the robo-chef.

This is "robo-pricing?" Is that so retailers can blame an inanimate object instead of taking responsibility? The original word 'robo' means "forced labor, compulsory service, drudgery"...exactly what some retailers are putting their customers through.

So I buy that Bulova watch for $750. Now I return it for a full refund. Then I re-buy it for $418. And this is a good business model, how? Not only does the retailer lose the $332, it pays for the exchange and restocking and they've annoyed a customer and created a lot of suspicion and distrust. The only way this "works" is if the customer doesn't know this conniving is going on constantly.

Peace and goodwill to all!

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Ian Percy, President, The Ian Percy Corporation

Amazon is using some amazingly sophisticated algorithms to determine what prices are going to engage shoppers at specific times, after the shopper views specific product offers and even when shopping carts are abandoned. They also do a lot of path to purchase analysis to see what offers are successful given the shopper's buying journey and, probably more important, which paths don't result in purchases.

But shoppers remain fickle and I'm not convinced that a dartboard approach or even good old human intuition wouldn't deliver the same results. Then again, maybe the algorithm they are using is in reality a dartboard app that just randomly assigns prices....

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Ron Margulis, Managing Director, RAM Communications

From a personal point of view, I start all my shopping with Amazon. I know I will get a reasonable price, great customer service and have my purchase the day after tomorrow. Not only do I not have to waste time shopping from store to store, I don't have to waste time shopping from website to website. And sometimes, when I order something, I get a notice that they just dropped the price. How can you beat that transparency? It only gives one confidence in the retailer.

It is tough to beat, but there will be future services that even the smallest websites can access that will accomplish this...if they are willing to let the market determine their pricing. But, few will.

Brick and Mortar stores can do the exact same thing with electronic pricing and electronic price tags. But, again, they don't want to give up their own ability to price goods.

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Gene Detroyer, Professor, Independent

Amazon can gain some advantage in press, shopper noise, and certain shoppers. In the long-run of this business, the real retail bottom-line will be driven by shopper loyalty and not price. Some retailers will gain loyalty due to price - others due to consistent prices, strong service, and merchandise selection "simplicity." Price is on the front stage right now, but it will fade and Amazon will need to re-think some of their price and speed strategies.

I myself would never buy a watch at Amazon. I have a watch shop that gives me a great price and super service. Service and price are why I own so many watches bought at one place.

Happiest holidays and merry xmas!

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

This is one of a multitude of advantages Amazon has and a reason they are one of the best retailers in the world. It's more apparent than ever that the industry is basically consisting of the haves and have-nots. Those that have customer relationships and loyalty and those that simply cut, rather than actively manage, prices in order to compete. Clearly Amazon's model is not simply about pricing, it's about data. And data, used properly, rules.

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Phil Rubin, CEO, rDialogue

This is just the start. Pricing will eventually get personal, perhaps you'll spend $750 on that watch, but as a cheapskate, I need a $100 discount to buy. I think "list" prices may stabilize, but look for personalized discounts dynamically offered, and instantly redeemed on a one-to -one targeted basis.

Advantage to online? not necessarily, if I'm in a store I'll be watching my mobile phone for my very own deal as I walk the aisles! Personal pricing - it's not as far away as it sounds!

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Peter J. Charness, SVP America, Global CMO, TXT Group

Flexible pricing models, where prices shift based on a variety of variables, are not necessarily new - airlines have been doing it for years. Today, loyalty data enables us to use price literally at the customer level, as a way to promote selective trial of products or to recognize specific behaviors.

But there is a risk of under-defining the data. Some consumers may behave as if they are not price sensitive, but in certain categories they may be hyper price sensitive. If they are overlooked for certain promotions, they may feel the brand is not offering a fair opportunity across the board. If merchants use the data to define the full spectrum of consumer preferences and activity, price can be used to ensure customers are introduced to the right products and services in the right way.

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Bryan Pearson, President and CEO, LoyaltyOne

Retailers, both digital and physical, should combat this in the long term by creating a better shopping experience for their core customer. Change the game, create a destination, create interesting shopping environments where the core customer can make multiple purchases.

Many people use Amazon as a comparison tool for products that border on commodity, and so do I. But when I want to buy interesting products for tech friends, I shop ThinkGeek, for cool shirts I visit Hugh & Crye, and for fixing my leaking faucet I head to Ace, where the staff really does help you out. Retailers chasing Amazon's prices to the bottom is a fool's errand.

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Larry Negrich, Vice President, Marketing, nGage Labs

This makes me feel like Amazon is more interested in 'converting' the sale and not so much about making money.

I too have to ask the question; Is this REALLY a good business model? And, let's not forget Amazon's allure of great service. Is this really going to keep their customers happy?

These days, consumers are really into transparency. They want to know what is going on in the background and they want fairness. But, they also want a deal as long as they are at the good end of the deal.

Heaven forbid they buy that watch for what appears to be a good price only to find out later that their neighbor got it for a few hundred dollars less. That is when they scream foul!

Amazon, you better watch out! (You better not pout...ha!)

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

Price changing for Brick & Mortar (B&M) retailers is both expensive and time consuming. Present day ancient policies and procedures are designed with limited quality assurances that on a daily basis build double digit results in creation and ownership of the total number of consumer complaints.

Additionally these processes were never conceived to stand against the e-commerce market of the 21st century. Whether it was by design or accident, the e-commerce clan is feasting on this weakness with tremendous results. What is most surprising is the failure of the marketplace, particularly the Information Technology (IT) movers and shakers, in creating a process to fend off this attack from e-commerce.

With all the money and market share loses in this topic the opportunity for a cost effective solution like we have here is not getting its deserved attention in the search for new business.

'gjarnoldjr'

Perhaps we should really be talking about customers. What advantage do they get from unstable prices? What will their reaction be when they experience prices going up as well as down?

malcolm wicks, Director, Pierhouse

I'm getting way more comfortable with the digital age, but I'm sometimes bewildered at how fast things change, like prices. The flow of new information about retail items is like a fire hose, and I praise any service that can help us make sense of it. Such as Amazon. I especially like their notifications on my Wish List items - here's one I saw today for a collectible pocket knife: "Price dropped 30%." I've received planned "sale" emails from other online retailers I frequent, but nothing like the constant and seemingly spontaneous stream of alerts from Amazon.com. I see that as a significant advantage for them.

Some years ago, electronic shelf tags were introduced to supermarkets. I expected huge growth, labor savings, and the ability to quickly and efficiently change shelf prices from HQ - not weekly but as needed to be competitive. Never saw that happen. Perhaps with the advent of programs like Profitero and Amazon's helping customers to get comfortable with spontaneous price changes, supermarkets can join this particular revolution.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Amazon has a dramatic advantage with their continual price changes. This is a classic example of speed and agility driving incremental orders. Amazon is just simply faster than anyone else, and has built a structure to maintain that advantage.

What I wonder is if the pricing changes not only relative to competitors, but does pricing change for different customer segments? I am sure offer combinations do change, but does the individual unit pricing?

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Mark Price, Managing Partner, M Squared Group, Inc.

It's definitely an advantage, but there are an increasing number of companies offering software that enables other retailers to employ dynamic pricing strategies and even the playing field a bit. But being a loss leader, Amazon is willing and able to drop prices more than their competitors, so there's that.

B&M and multichannel retailers can invest in data technology (either their own or through a third party) to capture consumer and competitor data to compete. It doesn't mean you have to have the lowest price - it's about optimizing profits using the power of data. This is easier to do online since speed and scalability can be more difficult offline, but there are software services that can aggregate your data and even integrate with your POS system to facilitate repricing. Electronic shelf tags are one way retailers are experimenting with variable or real-time pricing to automate and ease the difficulty of changing pricing in-store.

Arie Shpanya, CEO, WisePricer

Depending on how crazy it gets, continuous price change at retail opens the door for new commerce forms to engage. Coming from the trading industry, my perspective might be a bit warped but maybe it opens doors for intermediaries to get in between Amazon and the consumer. Spot demand should carry a different value than someone willing to wait.

Speculators, hedgers, spreaders; there's room for everyone to jump in and be a consumer; not for consuming, but for trading. It's done in commodities, stocks, housing - why not consumer goods? Technology facilitates the move.

Frank Beurskens, CEO, ShoptoCook, Inc.

What is robo-pricing? How much of an advantage does Amazon gain with its continual price adjustments?

To be fair - I like more the Dynamic pricing - as I think it reflects better meaning of it.
- Dynamic pricing (robo, algorithmic, whatever you call it) means an automated optimization of prices based on the number of factors.
- Dynamic (robo-) pricing is a cornerstone of Amazon's retail strategy and surely not by accident. I think overall it helps Amazon in many ways to grow market share, sales, and profit margin.

How should brick & mortar and multichannel retailers respond? The dynamic pricing is surely here to stay - more and more retailers implement it, especially online. We see most of leading retailers going this way sooner or later. But your own dynamic pricing doesn't have to be as frequent as Amazon's. As a retailer you don't have to match every price change of Amazon, but you need to be aware about their prices and act when you see that it makes sense specifically for you.

The retail market landscape is changing and it will never be the same. But it brings in not only negative developments (as lowering margins) but also the opportunities for retailers that recognise them early. We see the leading retailers adopting the slogan: "The right price at the right time" - meaning optimization of the retail prices based on the number of factors including the retailers' own goals (market share, sales or profits), competitive prices, shoppers' demand, margins, and even time of the day/week or location of a store.

For those who do this properly - there many benefits. For example, we at Profitero work with a number of large retailers (both online and bricks & mortar) who are able to consistently grow their market share, sales and profit margins by using dynamic price management based on Profitero's daily updated competitors' pricing data.

Vol Pigrukh, CEO, Profitero

360pi analysis reveals that top retailers, such as Walmart, Target, Home Depot, Costco, Fry's, Overstock, Sam's Club and Newegg, changed prices on less than 10% of their assortment on Black Friday indicating that most retailers were not discounting broadly. The very significant exception to this observed trend was Amazon, changing prices on almost a third of their assortment on Black Friday alone.

Amazon's strategy appears to be the fastest follower of the lowest price, but not necessarily the lowest price. The post holiday results will show the relative effectiveness of different retailer pricing strategies including that of Amazon's continual price adjustments. In general, Amazon leads the industry with the largest number of prices changes, which we reported in Bain's most recent Holiday Newsletter to be at least 3 million daily.

Jenn Markey, VP Marketing, 360pi

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